Archive for the ‘Government policy’ Category

Professor Roy Green (UTS, Sydney) does a great job keeping his friends updated with the latest policy papers. He has steered us to a very recent U.S. Department of Commerce document (joint with the National Economic Council) which explains the industry policy direction of the US Government. However the document is quite simplistic and uninspiring. Perhaps its target audience is middle America (with which we have no quarrel), but one might have expected it to emphasise global supply chains, bilateral deals with emerging developing economies, and a tax system more attuned to the 21st century. You be the judge – full document is on the web.

The key points are paraphrased as follows.

The U.S.economy reigned supreme in the 20th century – world’s largest, most productive, and most competitive. As the 21st century approached, alarms sounded – incomes stagnated and job growth slowed. Other countries became better educated and our manufacturing sector lost ground to foreign competitors.

The scientific and technological building blocks critical to our economic leadership have been eroding – elements of the U.S.economy are losing their competitive edge.

Innovation is the key driver of competitiveness, wage and job growth, and long-term economic growth. Therefore, need to look to the past and examine the factors that helped unleash the tremendous innovative potential of the private sector. Among these factors, three pillars have been key:

– Federally supported research laid the groundwork for the integrated circuit and the subsequent computer industry; the Internet; and advances in chemicals, agriculture and medical science.

– The U.S. educational system in the 20th century produced increasing numbers of high school and college graduates, more so than anywhere else in the world. They boosted innovation.

– The transformation of infrastructure in the 20th century was amazing – the country became electrified, clean water became widely available, air transport became ubiquitous, and the interstate highway system was constructed. These developments helped businesses compete by opening up markets and keeping costs low.

The need for the Federal government to play an important role in research derives from the fact that there is a divergence between the private and social returns of research activities which leads to less innovative activity in the private sector than is what is best for our country. However, government support of basic research can remedy this problem.

To improve the trajectory of American innovation, thoughtful, decisive, and targeted actions are needed i.e. sustaining the levels of federal funding for basic research, extending a tax credit for private‐sector R&D to give companies appropriate and welldesigned incentives to boost innovation, and improving the methods by which basic research is transferred from the lab into commercial products.

Education – the second pillar – is also critical to foster innovation and to increase living standards. The advances in education in the 20th century helped propel the economic rise of the United States. However, the education system has slipped – poor preparation in math and science and the high cost of college tuition and expenses are restricting the flow of American science, technology, engineering and mathematics (STEM) graduates from our universities.

In the past, the US has led the way in several key areas of infrastructure development (the third pillar). Today theUS is lagging behind in broadband Internet access and wireless communications.

A crucial component of theUnited States’ future competitive strength is a flourishing manufacturing sector. Manufacturing creates high-paying jobs, provides the bulk of U.S.exports, and spurs innovation. Manufacturing’s share of GDP and the number of workers in manufacturing has fallen, while the trade balance in manufactured goods has worsened. The Federal government has historically played an important role in providing a level playing field and must do so with renewed vigour.

Increasing the competitiveness and the capacity to innovate goes beyond improving research, education, infrastructure and manufacturing. There are many other policies that ensure the private sector has the best possible environment for innovation and competitiveness – including incentives to form regional clusters, promotion of exports and access to foreign markets, the level and structure of corporate taxes, and an effective IP regime (domestically and abroad). The Federal government has an important role to play here.

The United States has a strong base on which to rise to the challenges. There are clear actions that can help this nation regain its innovative and competitive footing. To succeed, we must have the will to implement and to sustain the policies that will prepare theUnited Statesto continue to be an economic leader in the 21st century.

There is a widely-shared consensus across Europe that mobilising innovation potential of all regions is the way forward.

To this end, a recent European Commission study ‘Regional Policy for Smart Growth in Europe 2020’ (Directorate-General for Regional Policy) calls for a refocusing of regional policy. It makes four suggestions that make a lot of sense for all regions. (Our comments are in brackets).

1. Develop smart specialisation strategies

This calls for regions to concentrate on the most promising areas of competitive advantage based on clusters, cross-sectoral activities, innovative services, high value-added markets etc. The strategies should be subjected to international peer review. (Yes – sticking to the principles of competitive advantage you hold the high ground! International peer review also provides the objectivity sought by potential investors.)

2. Redirect programs

The EC study proposes that the substantial funds available under the EC regional cohesion policy be redirected to programs that conform with a smart specialisation approach. (This could theoretically improve the performance of regions i.e. program funds would go to those fields with the greatest economic potential).

3. Interregional cooperation

This recommendation is for better access to international research and innovation networks and for EC member states to run their own projects to this end. It calls for improved knowledge transfer and the use of the “Regions for Economic Change” and “RegioStars” initiatives. (This is most interesting e.g. there is interaction between Australian and EC academics, but it rarely extends into policy research. Wouldn’t it be marvelous if our academics got involved in international research that could underpin government policy!)

4. Develop a “smart specialisation platform”

The EC study recommends the marshalling ofexpertise from universities, research centres, regional authorities, businesses etc. to formulate and implement smart specialisation strategies by national and regional governments. (Regions in most nations are crying out for ways of aligning resources and program support to attract investors. Collaboration between federal, state and local governments to develop such pathways would really shake things up! Companies do it, why shouldn’t governments?)

The first round of the Australian Government’a $1 billion play in regional development got off to an inauspicious start last month, and there are lots of confused punters.

Why? Mainly because there were only 35 successful applicants out of 550 submissions – a very low success rate of 6.4%. Thankfully some of the winners were Cockatoo members.

The Department is pointing out that the success rate was actually higher because 249 applications didn’t meet all the criteria. That is splitting hairs.

The problem is that Minister Crean talked the program up way too far i.e. $150 million per round is not much across 55 regions. And an urban centre likeGeelongwith marginal seats should NOT have received two lots of $10 million. If you’re one of the 93.4% who missed out, DO NOT give up. Crean has stressed the importance of being persistent.

Notwithstanding the above, the RDA Fund criteria are sound. Our view is that program funding needs to be doubled due to the underlying need for community infrastructure in the smaller councils/towns. They don’t have the revenue base, whereas cities likeGeelong,Bendigo, Gold Coast andNewcastle(who cornered over $40 million in the first round) have countless more funding options.

The 55 RDA Committees must also prioritise the projects before they go to Canberra. They should be told to put a maximum of two projects forward in any six month period (i.e. total of 110 acrossAustralia) – with an ‘understanding’ that at least one would be funded. This would avoid the large number of submissions at present, and give the RDACs a reason for existence. We are currently lobbying certain MPs to this effect.

The good news is that there are other well-resourced programs in other federal portfolios.

Well the dries are out in force, selling the manufacturing sector down the river. John Button, the peerless industry minister of the Hawke/Keating days, would be turning in his grave.

Ross Gittins (Economics Editor, SMH) is a typical example – he postulates that we don’t have a transitory commodity boom like we’ve experienced many times before. This time, he says, we “have a historic shift in the structure of the global economy as the Industrial Revolution finally reaches the developing countries…the day will never come when we’re able to reopen our steel mills and canning factories…’

My big worry is that Gittins’ views are beginning to shadow federal industry policy! Having spent 25 years working in the industry department trying to give our manufacturing industry a future, and a stint at the OECD analysing other nations’ industry policies, I owe it to myself to get cranky. Now let’s be brutally frank.

Six messages

1. Industry policy is defined as a ‘nation’s official strategic effort to influence sectoral development.’ We have nothing like this. Even the title of the industry department – the Department of Innovation, Industry, Science and Research – explains how manufacturing has slipped in importance!

3. Our industry policy is not strategic – it’s mostly about providing diagnostics to improve the performance of companies (Enterprise Connect) or funding innovation via the R&D tax credit and the Commercialization Australia program. These are good programs, but they are crying out for complementary strategic effort. There is no investment attraction program, no strategic purchasing agenda, no design program, no decent product labeling, no attempt to build global manufacturing alliances and no policies to add value to our mineral exports.

4. There is no longer a kick-arse attitude inCanberra. We once had a strong Industry Department, with four manufacturing divisions, who took delight in nailing Treasury. And we had a Department of Trade with real movers and shakers. Now DIISR has a small manufacturing area, and the trade function is swamped by the elites within DFAT. As a sign of the times, Trade Minister Emerson shows alarm at the prospect of adjustment assistance upsetting the World Trade Organisation, when we’ve always been the world’s cleanskins in obeying international trade law!

5. Manufacturing industry is not a sop to the engineering fraternity or to create jobs for the semi-skilled. It has the strongest multiplier effects of all the sectors. It provides the glue for long-term wealth creation.

6. It is incredibly difficult for any manufacturer to compete with imports when the $A is so high. We have to help them develop sophisticated ways of dealing with our competition. If they can’t compete on price, they must compete on quality and timeliness. To this end, we must surely get into industrial design in a big way. The manufacturing sector is crying out for some programs to encourage a mindset of innovative design

In fairness to Gillard, Carr, Crean and Co., the Opposition has no clear idea of what to do either. It seems to me that our political leaders are clueless due to the lack of sensible advice from their advisers.

The role for local players?

First, economic development managers and local MPs should be talking to local manufacturers to relay their needs to federal and state governments.

Secondly, I believe an alliance of manufacturing regions should lobby the federal government and the Opposition. Councils, especially those in regional areas with few alternative industries, have a vested interest in this. You are going to bear the brunt of the social problems. Apart from the big retrenchments, virtually every trade-exposed manufacturer is shedding labour or thinking about it.

The one bright spot is the defence manufacturers. At least we haven’t yet embraced Chinese munitions and equipment!

I’m often asked whether councils should write to federal ministers to push a particular project or issue. The answer obviously differs according to the circumstances. But there are common lessons and I’m happy to pass them on.

The starting point is to recognise that whichever part of the world you’re in, there are a myriad of ways of trying to engage with federal ministers. In the Australian context, the main options are:

Community Cabinet meetings – a great mechanism if you can swing such an event.

A random meeting to coincide with other business while you’re in Canberra- not recommended unless there’s some substance to the meeting.

A submission to a federal enquiry – yes, provided it’s followed up with a meeting.

A grumpy email letting off steam – not recommended.

A quick chat to a Minister after he/she has spoken at a gathering – OK for starters.

However most attempts to engage with federal ministers fall short because councils are not clear about their desired outcomes, don’t have a strategy, and therefore don’t have a strong pitch.

And if you haven’t a strong pitch, then your request gets swept aside in the maelstrom of paper and emails flying around the national capital. Reflect for a moment – the Australian Prime Minister receives 148,000 items of correspondence annually, and every approach gets a response (except for the loonies). Given the huge workload involved, the pedestrian letters and submissions receive a reply from an SES officer within PM&C or the line department to which the correspondence was referred.

The Department of Innovation is a bit different. It advised me that while its Minister receives a more modest 3,500 letters per year, around 65% (2,275) require a considered reply. Of this, Minister Carr replies to approximately 45% (1,000).

All up, I’d say the 45 ministers and parliamentary secretaries pump out close to 300,000 repiles annually. What is not generally understood is that each of these replies undergoes three or so drafts in the Department, with senior officers often ruminating over the best form of wording to ensure no blow-back from the Opposition. To my mind, this is a huge waste of resources – officials would be better employed developing solutions to problems, rather than mindless wordsmithing.

Anyway, getting back to the point, to get traction with a Minister it’s best to pitch your letter or submission around solving a problem in the context of federal policies or programs. This provides a context for departmental officials and ministerial minders (who perform quite different roles) to sit up and take notice. Outlined below are some problem areas, and some examples of how councils could make a pitch for some mutually beneficial solutions.

Export ban on live cattle

The immediate problem is that Agriculture Minister Ludwig overreacted with his ban on live cattle exports toIndonesia– simply put, he misjudged the economic and social dislocation to northern Australian communities.

However the long-term problem is that the shipment of live animals is inherently cruel and uneconomic when compared with the best practice solution, the shipment of chilled beef.

You are probably thinking about the standard line thatIndonesia doesn’t have sufficient refrigerated capacity to go this route. This is undoubtedly true at present, but what if an alliance of councils in affected regions proposed to PM Gillard and Minister Ludwig the offer of land and locational incentives for a chain of export abattoirs? This could be the game breaker, with the other elements being:

The problem here is the need to create jobs inTasmaniain the face of the feds’ forestry restructuring program. Another $120 million is to be rolled out, following the hundreds of millions of federal assistance poured intoTasmaniaover the last four decades.

What if a council, or alliance of councils, suggested to PM Gillard and Regional Development Minister Crean that the three levels of government form an alliance with industry associations to chase new industries and new international players? Sounds revolutionary, but it hasn’t stoppedNew Zealand(Tassie’s mirror economy) doing exactly this!

Food labeling

The problem here is that our food manufacturers are being swamped with cheap foreign product, and the current labelling arrangements provide NO IDEA to concerned consumers of the true local suppliers. Former Health Minister Blewett’s recent review gets nowhere near a solution. And I’m willing to bet that a food poisoning scare involving foreign product will blow the issue sky high.

Given that food value-adding is critically important to many regions, I believe it most appropriate for councils in theGoulburnValley,LockyerValley, Adelaide Hills, Riverina, Sunraysia.Swan Valley,Tasmania, central and northernQueenslandto be pitching to PM Gillard, Health Minister Roxon and Industry Minister Carr for decent food labelling combined with real anti-dumping action.

I could provide a dozen further examples. My point is that councils should be bold and persistent by pitching sensible solutions to national problems. This can start a productive relationship with federal officials and their political masters. As local government moves to constitutional recognition, you owe it to your constituents to step up to the plate. Ring us on 0412 922559 or email us on apdcockatoo@iprimus.com.au.

While in Cooktown recently, I bumped into a character who was working at the Hope Vale community (just north) when Cyclone Larry ripped through in 2006. He said that among the helpers post-Larry was a government official who promised a refrigerated storeroom to enable regular supplies of fresh fruit and vegetables to the 750 residents.

Well after 3-4 months of no word, the Hope Vale chap telephoned the number on the business card. No answer. A few weeks later, the same result. He tried a third time, but then gave up. He has now forgotten the department the official was from, and shrugs it off as another example of the tyranny of distance.

Unfulfilled promises and inordinate delays from government agencies are the norm in regionalAustralia. The problem arises from the over-selling of programs, compounded by administrative processes that are way too process-driven and slow.

In my Brave New World, I’d close half the do-gooder federal programs, shift the savings into regional budgets, and move 10% ofCanberrabureaucrats into regional centres where they’d have Key Performance Indicators based around getting funding out promptly to the right areas. If the Cooktown region’s priorities are refrigerated storerooms, cyclone relief, teachers or harbour dredging, then that’s what they’d get – and within an agreed timeline. As I’ve said before, next time a Minister or Shadow Minister lobs in to discuss your needs, impress on them the need for REAL DELIVERY.

Councils in Australia seeking to position themselves for this funding should note that it is a competitive process – thus if you are not committed to a quality submission, don’t even think about it.

The reason is that Minister Crean wants projects that stack up in terms of economic and social performance, leaving him to handle any political fall-out. (Remember the ill-considered Tumby Creek project that brought down the Howard Government’s RD program?).

Related points to note are (1) Crean’s Department is building to around 200 officers, and probably 35-40% of them will be assessing project applications or administering the outcomes; (2) Crean will leave the decisions to his Department based on its assessment of which projects best meet the criteria; (3) the Department has no funding for scoping up projects to meet the criteria.

To explain, there are five criteria – funding leveraged from other sources; contribution to sustainable regional growth and/or community benefit; ongoing viability; capability of managing the project; level of support to regional communities (for the not-for-profit projects).

The most important criterion is the ‘contribution to sustainable regional growth and/or community benefit’ because if you can’t nail this, everything else is irrelevant. In this regard, I strongly advise councils to focus on projects that conform with your regional competitive advantage and capable of generating widespread community and funding support.

We therefore specialise in preparing scoping papers that explain the what-why-how-when-who-how much. However neither the RDA portfolio nor its 55 committees will fund scoping studies or provide advice (due to the competitive neutrality requirement). My suggestion is thus that councils partner with their relevant state RD agency to fund this work.

Finally, councils might look at establishing networks and clusters, because they could be very helpful in developing and pitching for grants under the RDA Fund.

An exciting but uncertain year beckons, with regional development coming to the fore. The Gillard Government may not see out 2011, as Abbott et al conspire to force a new poll. And Rudd may prove to be an unsettling influence – like Ricky Ponting, he hasn’t realised his time is up.

Anyway, how might Cockatoo members deal with the ever-changing hues and foibles of the federal government?

Well, our consistent advice is to appreciate the quite different roles of politicians and bureaucrats, and then to be bold and persistent in dealing with both. The corollary is to ensure that your projects and ideas are sensible financially sound and broadly supported on the ground.

The $10 billion promised for regional Australia is unlikely for a variety of reasons. Our best guess is that half of this spending might happen, and mostly via competitive grants. Key programs that you should track are:

 Priority Regional Infrastructure Program ($800m) – for projects identified by local communities. Guidelines due February.
 Regional Infrastructure Fund ($6 billion) – depends on the new resources tax, which could get knocked off by the Liberals.
 Local projects identified by RDA Committees ($573m within the $6 billion above)
 TQUAL, the feds’ flagship tourism program ($40m) – guidelines due February/March, with a focus on indigenous economic development.
 Healthy Communities Initiative ($71.8m) for 33 councils – closing 4 February.
 Health and Hospitals Fund – a new round exclusively for Regional Australia.

I am reminded of wonderful insights offered by Canberra-based academic Dr. Kathy McDermott, in her book titled ‘Whatever Happened to Frank and Fearless? – the impact of new public management on the Australian Public Service.” She rally nails it, and her insights apply to many western democracies:

‘Vying for ministerial attention is not just about being interesting or novel, or even open and contestable…and the competition of ideas is not a simple contest on an even ground, where the best idea wins. In practice it takes place in a highly landscaped playing field in which interests and interdependencies create gently rolling hills, pitfalls, wind tunnels and extensive deserts – and where the goalposts are moved constantly.’

Indeed, many ideas sit in deserts – but it doesn’t necessarily mean they are dumb ideas. They may be just waiting for rain! That’s where collaboration can help you find partners who can provide a reality check, re-jig your ideas, improve the funding mix and help you lobby ministers.

The Cockatoo Network is developing creative local solutions, in line with the mantra of many federal governments – in the USA, Australia and most of the EC.

But gee, but most federal officials aren’t any help. Let me explain. In the bad old days, we were encouraged to actively work with companies to find solutions to their problems. I recall a work colleague in Australia quoting the legendary mandarin, Nugget Coombes, who once said that that ‘the function of a good bureaucrat is to make possible the realisation of other people’s dreams’.

Well we spend a lot of time looking for such bureaucrats, and avoiding the cardigans of which I’ve written about previously. So last week we were mulling over how to integrate a business incubator into a community centre, and I rang my old department to find someone who was full bottle on the subject. The Department used to have an incubator program.

Well to my joy I found the guru, who also knew of our work on clusters, precincts and smart infrastructure. Unfortunately, despite trying a few angles I couldn’t ‘engage’ him. He was straighter than Bill Lawry’s cricket bat, and basically said that the Department assesses funding submissions in a highly competitive environment, and cannot give advantage to one party over another.

So what’s the solution? The best practice option would be to reduce the emphasis on competitive programs, and for Ministers to encourage bureaucrats to collaborate with stakeholders. But I’m dreamin’. Perhaps the next best option is to engage the staff of regional development agencies who, although quasi bureaucrats, are not bound by the orthodoxy of federal governments.